INTERVIEW: ADS Securities wants in on Shanghai FTZ party

Hong Kong in the frontline, Singapore in the back office and the whole Asia Pacific market in its sights. That would be a pretty picture for ADS Securities, the largest brokerage in the Middle East.

Throw in Shanghai with its nascent but growing free trade zone (FTZ) and you have the closest thing to an ideal situation. ADS managing director Desmond Yeo thinks so.

“There are a lot of opportunities there. It’s something we would like to expand into,” Yeo told the Hong Kong Economic Journal’s EJ Insight.

Yeo said ADS is in talks with a number of Chinese companies about potential joint ventures that would give it faster access to the mainland market.

The discussions are part of plans to expand into Asia Pacific with Hong Kong as the nerve center of its regional operations.

These follow the November unveiling of the Shanghai International Energy Exchange which will trade energy futures in the Shanghai FTZ.

The contract will be denominated in renminbi which will greatly impact the commodity market, now largely traded in the US dollar, he said.

“It looks promising. This could be the first of its kind. The Chinese generally move fast and I wouldn’t be surprised if something happens in the next two years.”

The Abu Dhabi-based brokerage provides foreign exchange, bullion and commodity trading services to institutional and professional investors in the Middle East.

Its institutional clients include banks, global and regional hedge funds, asset managers, investment banks and non-bank financial institutions. These are equally split between Europe, the Middle East and Asia.

ADS is looking to set up headquarters in Hong Kong, the largest offshore hub for the Chinese unit, to capture opportunitiesin US dollar (USD) trades with offshore renminbi (CNH) and the Japanese yen.

Last year, offshore renminbi was second only to the US dollar in Asia, with a 2.76 percent appreciation, reflecting gains in the onshore market. On the flip side, the Japanese yen was the second worst performing currency against the greenback, weakening 17.62 percent, amid quantitative easing by the Japanese central bank.

“We believe Hong Kong will continue to develop as a foreign exchange center with the increasing liberalization of offshore renminbi,” Yeo said.

Offshore forex trades

ADS has received a type 3 foreign exchange license from the Hong Kong Securities and Futures Commission, aiming to pave the way for future development in the Asia market. The company has a daily trading average of about US$5 billion globally.

In fact, the brokerage has started trading USD-CNH, offering access to the renminbi amid growing interest in the Chinese currency, the company said in a statement on Nov. 6.

“For now, as we are about to enter a tapering cycle in the US, our clients are very much interested in the offshore US dollar-renminbi pair,” Yeo said. “On one side, we expect the dollar to appreciate this year. Offshore renminbi could strengthen as well, so it is an interesting prospect.”

In November and December, the Chinese unit was one of the top 10 most-used currencies for trade payment by value, up 15 percent from the corresponding period a year earlier, financial cooperative SWIFT said in an e-mailed statement on Jan. 23. That compares with 7 percent growth for other major currencies.

A September 2013 survey by the Bank for International Settlements puts the renminbi as the ninth most traded currency, accounting for 2.2 per cent of global trading, from 17th place and a 0.9 per cent share three years ago.

The company is looking to get an equity trading license in Hong Kong to diversify its portfolio and a wealth management license afterwards.

Asia-Europe bridge

With 12 Chinese clients, ADS has started working with the subsidiaries of some Hong Kong-based mainland entities.

“We’re not only focused on China, we are also looking into opportunities across the Asia-Pacific region,” Yeo said. He singled out Japan, Australia and Malaysia.

A Hong Kong base would serve as a conduit between its Asian and European business, linking it with London, the world’s largest foreign exchange market. The next goal is a London forex license this year which would allow the company to provide services across time zones.

“A forex license is just a starting point. We plan to launch offshore yuan-denominated products after we get a London license,” Yeo said. That would allow ADS to launch more yuan-denominated products as London market is more mature than the Hong Kong market.

Singapore serves as a back office of its Asian operations but it is also a potential trading hub. Yeo said regulators there have not issued a forex license since 2009. ADS could be the first to win one.

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